The Organisation for Economic Co-operation and Development projected that Britain’s exit from the European Union will result in a sharp slowdown in economic growth in the United Kingdom.
“The major risk for the economy is the uncertainty surrounding the exit process from the European Union, which could hold back private spending more than projected,” the OECD report stated.
However, the OECD noted, the U.K.’s outlook could improve amid a less disruptive Brexit: “Prospects of maintaining the closest possible economic relationship with the European Union would lead to stronger-than-expected economic growth.”
In its growth forecast, published this month, the Paris-based thinktank downgraded its 2017 growth forecast for the United Kingdom to 1.5% from its 1.6% estimate made in September. Overall, however, as projected by the OECD forecast, the United Kingdom is the weakest economy among the G7.
Furthermore, the OECD projects GDP growth in the United Kingdom to fall to 1.2% in 2018 and 1.1% in 2019, when Britain is expected to leave the EU. The OECD said it projects growth to stabilise at a low rate, “with the negative impact of uncertainty about the final outcome of Brexit negotiations being partly countered by an assumed agreement on a transition period after March 2019.”
In addition, high consumer debt growth, coupled with stagnant household incomes, is a “major financial stability risk,” the OECD report stated. “Banks’ exposure to consumer loans is rising, and write-off rates on such loans have been ten times higher than on mortgages over the past decade, and defaults are much more sensitive to economic conditions. Introducing measures to ensure that household balance sheets remain sound, such as maximum debt-to-income ratios depending on borrowers’ financial buffers, would bolster financial stability.”